Hello, everybody, and welcome to another episode
of the Investing with IBD podcast. It's your host, Justin Nielsen here,
and I am back from vacation in Costa Rica. Glad to be back and glad to be with Irusha
Peiris, who joins me every week. He is an O'Neil Global Advisors
portfolio manager and research analyst. How are you doing? Irusha I'm doing well,
Justin, it's good to have you back. It's nice to see producer Mike Happy that the actual recording software
is starting to work. Yeah, there were a couple of false starts,
but, you know, and it's tough, right? I was going to start
making the same joke over and over, but I just wasn't sure
if I like it anymore. And if you're not smiling,
I mean, what's the point? Well, we've got a great show for you. It is June 26, 2024, on a Wednesday
that we're taping this and we're bringing back to the show John Kosar, who has been on the show
a number of times. He is the chief market strategist
over at Asbury Research. He's got a really interesting models
that we like going over. It's amazing to me how he attacks it
from a little bit of a different way, but a lot of times
our signals really match up very nicely. So John, welcome back to the show.
How are you? Oh, great. Good to be here. It's good to see everyone's everything seems to be clicking
and I'm looking forward to it. Yeah. And we got our producer in the background doing some cheers, you know,
which is always a plus. You know it's it's it's good to have
cheerleaders in your in your corner. So it's the first time
he's cheered us on to him. I know. First time he has cheered us on. Usually it's like,
you know, he's like, come on, guys. You know, he brings out the hook
on the stage and everything like that. So it's a nice it's a nice change of pace. But speaking of change of pace, John,
we've been having a lot of changes of pace in the market. So really excited to kind of
get your thoughts on this. Why don't we go ahead and dive right in? We're going to talk about the market, we're going to talk about rotations
and how quick they're happening. And then you've got a few stocks and ETFs that you're going to kind of share with us
your thoughts on. But let's start with the market in
general, and you've got an S&P 500 chart. I should mention John Kosar is he's got those special three letters
behind his name, just like Urrutia does. The CMT. So a lot of great chart
information that he goes over. Give us your thoughts on the S&P 500 right now
and how it's looking. The S&P 500 is held up really well. There's a chart there that we can go to
if you like. But, you know, the trend is
the trend is up. It's up above the moving averages. There are some support levels
underneath the market. They're very visible. They have to do with the trend line
from the October lows. They have to do with the 50 day
moving average. But the chart is it doesn't tell the whole story. I mean, if you if all you look
that was the S&P 500, you think, man, this is a comfortable market. This is a normal, healthy bull market. And it's really not that strength
that we're seeing in the S&P 500 is driven just by just a few stocks. You know, my son Jack,
who you know, who works with us just the other day, you
know, we're just kind of breaking it down. The S&P 500 is up 14% for the year. It's a couple of days ago
in video, was responsible for 5% of that. The next five down in market cap
were responsible for another 5% of that. And the remaining 4% was the other 494
stocks. So, you know, that's the poster child
for what's going on here. Here, we'll look at that charter. Let's look at those levels. If you're trading this, you want to know
where the big levels are, Right? So you want to try to stay with the trend
as much as possible. So we've got some minor support here
at 5342. That's just off of the May 23 high. But the level that is the most meaningful
to me, I think it's about 4% below the market, 50 to 90 is this trend line
that originates back in October. That's where this latest leg up started. Our CPI
model came in right on November 3rd. So we were a couple of days after that. But maybe, maybe explain what CPM
or just at least what CPM stands for Correction protection model and the reason for the model
of the genesis of of the models. The financial crisis
during the financial crisis we work with, a lot of our idea is we work
for a lot of individual investors as well. But what happened the financial crisis is
there were a lot of folks that stayed too long and they stayed within months of the bottom,
finally couldn't stand the pain anymore, got out if the market bottomed. We had that kind of secondary bottom
in March of oh eight and then the market really took off
like a shot. A lot of people were gun shy to get back
in after taking that kind of a beating. And once you let your emotions start
dictating how you trade your debt as far as I concerned. So the CPM is just trying to get us out of the market
or letting us know in the markets going into a week and say it's not focusing on
what the S&P 500 is doing every day. It's looking at a lot of market internals,
a lot of our own tools. When the market is internally weak,
we move out of the way. When the markets starts to strengthen
internally, then we move back. So the CPM has effectively been risk gone
since November the third. So what we would look at is if CPM moved the risk off
and we broke down through the 50 to 90, the 5252 level that we just were seeing
just a couple of minutes ago, that's the signal for us
that at least on a tactical basis, it's time to do what you normally do
when the market's going against you. If you're a manager, you might be shifting to different assets
or maybe reducing your allocations. If you're individual,
you know, you may go with cash and they're going to find
some kind of short term bond. But that's the most important level,
I think, for folks that are watching this video
to focus on through this 5292, 5250 area, we are the trend has changed
in terms of the minor trend. Major support is down here at 40
and 56 to 4819 that's about 12 to 14% below
where the market is right now. The takeaway from that is we can drop 12% from here
and still be in a major bull market. So bigger picture, if we do have a correction,
which I think is likely between now and I don't like the forecast anymore. I've been doing this for 40 some years. I just watch the data. But if we have a correction, it's
great to know these bigger levels are because that's when you can make
your year is being able to allocate money that you had on the sidelines
at these places that you know, our support levels, that's
where your risk reward is good and that's a secret to trading. Everybody knows the market goes up
most of the time, but putting your trades at these advantageous levels
is really a lot of the game. Yeah. So you know what, let's go ahead
and also kind of take a look at the the the relative performance
versus a few different things. You you have a number of ways
of looking at the S&P 500 versus the S&P 500 growth. You know, so
talk a little bit about different ways that you kind of do comparisons
of that relative strength. Sure. Relative performance. The longer I do this, the more relative
performance becomes important to me. In some cases, I think it's more important
than just staring at the S&P all day,
What about 50 today and down 50 tomorrow? I want to see how it's performing
against other major assets. So what we have down here
is SPI versus ag, and ag is the is the broad bond index. I believe it's an I shares product. But the takeaway here
and we have a 21 day moving average under the relative performance
daily of spy versus AG 21 basis because that's the typical time
period that we use here. It is for research and you could see
when stocks are outperforming bonds first by AG, you have a nice move
higher in the S&P 500. We have a little stutter step here right the middle of April
to the beginning of May. I caught this,
but then it quickly reengaged. I made the third
and it's continued to outperform. And you can even see like, look back
towards the first third of the chart when this relative performance slide came and tested the 21 day, January 30th. That was a really good low risk place to get back into the market
if you weren't there already. And then we had
another one here on the 30th. The market hit a couple of weekdays,
maybe a week or something like that. So I was watching this,
you know, on another 20 charts, but this was one of the ones
that was focusing on because I it was a a logical bet for me that as long as this relative outperformance
trend stayed intact, this was a great place
to add to my long position here because the risk reward was so good. Yep.
Yeah. So John, actually
so going back to the narrowness of the market, right,
because it is very narrow now for individual investors,
the way I look at it, especially for a lot of our listeners
out there who are individual investors and when I see if it's narrow
or just stick with a trend, go with where, where, what's working right
and of course manage your risk and then get out
when some of those are breaking. But for institutional investors
who are who need to be in a lot of different stocks or are judged
against a benchmark or something, how do
they handle this type of environment? Because it's much more tricky when you have to kind of spread out
and diversify. Really tricky. That's what I'm saying. If you're just somebody
that looks at a chart of the S&P 500, it looks like nirvana,
it looks like everything is great, but we track 85 ETFs. They include commodities,
industry groups and sectors. And we look at four things we look at the major trend has to be up in order
for us to recommend those. As an overweight S&P
outperforming the S&P 500 on a quarterly basis, AOL has to be expanding
on a monthly basis. And then we've got some tools
we use to determine if there's a good risk reward on the idea of those 83, 85. I think there was only three
or four that were outperforming the S&P 500 on 63 day basis. So that shrinks that pool that
you could look for outperformance, Right. The two that we've been looking at
and they have been doing well, it's just very simple. It's been growth and it's been large cap. So there has been a little bit
of relative outperformance to gain there. But otherwise,
I mean, if we're looking at sectors even sector wise,
there's only two sectors of the S&P and we look at this fighter ETFs,
there's only two of those sectors that have outperformed
the S&P for the year. It's been SLK, technology, Excel, C, communication services and Excel K outperforming by about 4%. Two and a half percent of that
came last week and then Excel C is maybe 1.9%. So there just hasn't
been a lot of opportunities to find out performance
because the market is so narrow. You know,
we've got those five or six stocks that are
that have been the show this year. Yeah. Mm hmm. Well, you know, I also have this
ESP LG comparison and Septem maybe maybe we could go over to that chart real quick
if if that's okay. And you could chat a little bit about what you're what you're seeing there, kind of
to that to that effect. Yeah. That's why I want to look at these, because we're looking for outperformance
wherever we can find it. There used to be some of performance
a couple of months ago, some of the overseas
markets were outperforming. That all dried up. The only overseas market right now of the 25 that we tracked
that's outperforming is Taiwan. And Taiwan is you know, it's related to a I you know, this you know, that's
where a lot of the production of air is. But this chart, we have large cap here up on top down on the bottom. We have large cap as PLG is the 500,
the S&P 500 equity PTM is the ETF for the 1500. So what we see is we use a 63 day moving average here on the lower
part of the chart. That's our strategic time period, right? So that's a quarter.
That's a business quarter. You can see really since January,
this is not been trending, it's been drifting sideways. But we did have a breakout of this
sideways let's call a rectangle. If you're following charts in that way,
looking at patterns. So this looks like a lot of outperformance
here. This is really only one or 2%,
but that's been one of the places that we have been telling our
our clients, our subscribers. You know, we manage money
and we also sell research. But this is one of the places that we've been able to squeeze out
a little bit of relative performance just hasn't
been a lot of opportunities like that. And then, you know, since we're,
you know, kind of here, maybe you could chat a little bit
about the growth story. This is almost the same chart, right? So this is growth. It's the spy G versus spy. And you can see since January, right? No trend, right? There's not a whole lot going on here. But once we broke out of this rectangular pattern here, this is May 23rd,
this is not a one day either side of what we just looked
at when you're looking at large cap. So we've had about an up to two and a half
percent relative outperformance here. So this has been another place
where we have identified that, you know, you could put some money to work here and maybe be able to squeeze out
a little bit of relative outperformance. So those are two places lately
that we've found that there's been a little bit of alpha
to be able to capture. Justin, do you remember where
we got the follow through day? I I'm trying to run a line. No, no, no. The most recent one after the six week. Yeah, Yeah. So in May, that's
always around the same time or maybe. Yeah. Yeah. So it, well, it was a little strange
because the volume, you know, the volume was really kind of weird at that point
and kind of giving mixed signals. Remember, we also had, you know, not too long ago where, you know,
that the meme stocks were going crazy and they were kind of distorting volume
in a big way. But we had what we've been calling the the follow
through day in spirit on May 3rd. Okay. And so that was that was kind of
just as we were coming up. And then, you know, I think the
the real one was was like a week later. But you had you had some really strong
days, May 3rd, May 6th, and then you finally kind of broke out. You know, kind of what he's showing
right there. Yeah, maybe a little bit earlier you know as you vertical. Yeah. Yeah. Because it is really interesting,
John, to see. I would have thought that there had been more outperformance
from both of these. Right. But I guess it took some time
to consolidate. So looking at both these charts, it is kind of impressive
that it's only been a month or so. You're seeing this kind of outperformance
versus the overall market. And the interesting about these charts,
if you look at this chart, it looks like we had a really big move
right here. Yeah, exactly. The end of May, but it looks big
because this is so tight here. And between,
you know, the middle part of January up until the middle part of May, that range,
you know, the relative performance lags. It was just kind of winding up
like a spring. So you look at this, you'll see.
I mean, I'll bet you made a lot of money. Well, no, it's only like a percent or 2%. It's very small. So it's kind of like trying to squeeze
some water out of stone. There's what you move away from those big names
that are up at the top of the market cap. It's like slim pickings for looking for
relative performance, and that's including bonds. That's including a lot of the commodity
markets, almost all commodity markets, including overseas. This, like the game right now,
is those top five names that's in it. And how similar
is it to the beginning of 2023? Because it's almost like deja vu. It feels like how similar were our
were some of these charts that you saw in 2023 versus
now it's different. I don't remember specifically,
but I do know that this I can't remember a
and I'm sure there was one. I've been doing this for a long time,
but I can't remember a period where it was this this narrow, you know,
not only just looking inside the S&P or, you know, or looking inside the U.S. equity market, but,
you know, looking at other assets, looking at commodities or looking at bonds
or looking at overseas markets. It's just been
I don't recall working so hard to find so many few opportunities
that are outperforming, you know. Yeah. I mean, sometimes, you know, my recollection is,
especially in an uptrend market, right? I mean, you expect you expect there to be
nothing in a bear market, right? There's just it's slim pickings. But when the indexes are moving up, there are times kind of like when you get to the end of a cycle
where I feel like you get some narrowing, you know,
you start seeing things breaking down and then there's just a few
that are still kind of making the indexes go higher,
but it just doesn't last, you know? So you kind of get the signals
a lot of times in the individual stocks and then the markets start
kind of falling as well. But yeah, it's very different
from coming out of a bear market when you kind of expect, oh, okay, now we're getting our traction to
have it this narrow. This is this is very unusual in how it happened the end of December,
the beginning of January, our internal metrics all started to show
the market was tired. It was starting to turn over. I'm January
the eighth and I had to look backwards to find this, but I saw
there was a lot of breakouts on Jan. If Jan night and Jan test
there was in Las Vegas, there was a convention for air and then Vidya announced some new products
and I believe there was other firms too. But if you look at a chart of the video
and you look at the F it broke out of this video
had been drifting Cyprus for six months. He had this enormous breakout
and I think it's rallied. Yeah, it's up like 100% since then
and that was the genesis of this is the market was set up to do it
it normally does in January or February. Right. Take a breath,
you know, have a little backpedaling. And this this event on Jan eight
seemed to be the catalyst for all this. Just there's nothing
we can do to make money with that now. But I actually kind of saw this. Everything was pointing towards this date. So I just started poring through
the Internet and seeing what happened. And that was the only thing that I found
that was a game changer. So before we end this segment,
I wanted you to just kind of go through your Astbury Six, you know,
and you've been on the show enough times. A lot of our listeners
are going to be familiar with it, but we've got new folks, too. So just to kind of let them
know it's not it's not all you know, it's not all about the chart, right? You're looking at a few different things. And it's interesting how one, I was reading one of your recent commentaries and you've done
saying how it's been blinking. So talk to us a little bit about that. And this this indicators these indicators. Sure. The background on the first six,
I probably put together the first version of this. We back tested all my favorite technical tools that I've been using, you know,
throughout my career, going back to when I was on trading floor at the CME
and we tried to find a group of them that would work together as a team
because every indicator is off sometimes. So I tried to find six
that were different enough, and when one or two were giving me false
signals, the other four would pick it up. We came up the experts. Six I kept it internal for a long time. I was finding it
after doing this for a long time, I was getting freaked out by the S&P
moves. Right? The S&P is down 31 day, it's down 50. The other you start to lighten up your log position
even though you like the market and four days later
you're buying fresh eyes. So I wanted to wait to look at not
stare at the S&P and chase the tail of it,
but rather see what's going on internally. So we've got six indicators here. We've got the rate of change in the S&P,
the relative performance of stocks and bonds, which we've looked at a chart
similar to that investor asset flows in the slighter
volatility trading volume in breath blinking is when these six start moving back and forth between four green
and four red and three and three. What that means is
that the market is at a tipping point in between turning lower
or turning higher on a technical basis. This is all based on technical tools
that we have. This goes back, you know, the chart
that we just looked at 10 minutes ago. SPI ag spi ag is testing that 21 day trend of outperformance
by SPI versus ag that's telling you this is an inflection point,
this is the inflection point. That's what we're seeing here with this
balance movement lately in the ASX, where we're three and three
or four green and two red or four red. And to create all of these different ways
to look at the market from different angles are telling me that either the market picks it up here
between now and early next week. And of course we have TCE,
which I think is going to like the that's going
to light the firecracker on this thing. But it's telling me
that this level right here is technical. If the market's going to keep going higher
into the summer, we should get some acceleration
between now and early next week. If we can't, that could tip these charts
the other way. And you might see a turn
in that spy chart that we looked at. So a tactical inflection
point is what I call this. Yeah. And, you know, to your point, I think when we were, you know,
kind of doing our pre-show huddle, there were
more negative than there were positive. So it changed just that quickly
in between the time that we chatted. So it's exactly correct. You know, look at these dates. We got 625, 625. That was yesterday. Three is green yesterday. So. Well, when we come back,
we're going to get a little bit more into some discussions
on the rotation side of things, which John Kosar was telling us
has been faster than he's ever seen. So stay tuned. We'll be right back. We're back. It's just Neilson, your host,
Andrew SHAPIRO Paris, who joins me almost every week. He's going to be taking a break
in a few weeks, though. So brace for it, folks. Brace for it. It's coming. And of course, our special guest
this week is John Kosar. We were talking about the Astbury six
and how that's been blinking. But one of your other models
that I really like looking at is your SIF model, the sector. What does IT sector ETF? It flows. Okay, I'm glad I got that right. So yeah, sector ETF asset flows and this has also been something
that has really been kind of showing, you know, some some pretty herky jerky moves,
if you will, and some surprises. You know,
we were talking on the show earlier a few weeks ago about how strong utilities
were and everything. So why don't
why don't you kind of walk us through these are the 11 sectors, spiders
of of the S&P 500. How is it that you look at these
and what is what are they telling you right now? We built the model I built the model years ago that it used to be ten years ago. The sector rotations lasted longer. They'd last quarter or two. They don't do that anymore.
They're very quick. So I had to figure out a better way to be
in the right sectors at the right times. That was
faster than waiting until you could see the relative performance of the chart because by the time you see it
on the chart now the trend is half over. So I started experimenting with measuring the velocity of money
moving in and out of those 11 sectors, which together are the S&P 500 effectively
and looking at multiple time periods. So we came up with this model
and normally we got the model back tested to ten or 28
and set our website under models. But the norm for this is when the market is in an offensive mode,
as it appears to be. Now when you look at the S&P 500,
you'll see tech at the top, you'll see consumer discretionary at the top,
and then you'll see like health care staples at the bottom
for most of this year, really, right after that, this eight date
that I was talking about when everything changed and I drag
the rest of the market up by a tear, we're seeing rotations where you might have
technology is up top, right. It's got a breaking score of three
because it is number one in all three time periods. Trading technical and strategic. But during the course of the year,
technology up is up at the top, top to like one week. The next week it'll be down at the bottom
and utilities will be up at the top, right. Another couple of weeks will transpire
and you'll see the opposite. So it looks like the market
is trying to find out. Investors collectively
are trying to figure out where to be and they're skittish. They're staying in a place
for one or two weeks. And if it doesn't pan out immediately,
they're gone and out somewhere else. So like if you look at sectors fighter for the year, there's only two that have outperformed
the S&P 500 so far. One of those is tech stock
that's outperformed by around 4% as of a couple of days ago. But most of that 4% came about a week ago. So it was just really quick. And then Excel see, Services is up a little bit less than 2%. So they're just
the rotation has been fast and furious and yet frenetic and there hasn't been in a normal year,
you know, there'll be a couple of sectors, you know, this is not over yet, you know,
so there's plenty of time for right now. But the sector rotation play
hasn't yielded much because there's no sustained consensus
on where to go. And I think that has to do with interest
rates situation, with interest rates. You know, we had we have four or five Fed funds rate cuts at the beginning of the year and now there are people talking
about a hike by the end of the year. We've got a really contentious presidential election coming up with very different candidates. There's just a lot of cross-currents here. We're already up
33, 34% since October of last year. So I think managers just don't
know what to do here, Do I take the windfall and maybe start to move
into some of the safer places, or do I ride those five stocks
until they drop dead and then risk being a little top heavy at the top? So I think there's
a lot of consternation here that is not normal
to see in sector rotation. And me really studying this
for the past 5 to 8 years. So it almost seems like it. Well, first of all, it seems like those large-cap tech
stocks are the safety stocks now, right? Yeah, right. And and so the money tries to hey,
maybe it's going to go to utilities or materials or some some other area
and after a week or two, but maybe not. And they just run back home to safety
completely. It's it's like a fire drill. Yeah. You know,
so we run this at the end of the week. We look at it on a Saturday and it's posted it to the website
by midday on Saturday. So my son Jack and I,
you know, we're always interested this year to see where are utilities and terror going to be
because some things are up at the top sometimes a down the bottom. I've never seen anything like this. There's nothing new under the sun, right? I'm sure this has happened before,
but my guess is that this hand-wringing and consternation for the first six months is like,
you know, it's just so the market goes from trend
to sideways to trend. Again, it's a very you know,
the market goes in phases. I think this will eventually lead
into a period where we'll be able to get on one or two sectors and be able
to profit from that in the second half. But right now, the market is not ready
to make that kind of commitment. It's really artemisinin. I wonder how much utilities are benefiting from the whole electricity play, right? That's benefiting from
I wear a lot of institutions or there are plenty of institutions
that are thinking, Hey, with AIDS going to power so much,
And I think that uses ten times more power or five times more power
than a Google search or whatever. And so we're going to need all this
electricity. I wonder how much of an effect that has. You know, I don't know
how many of those electric electric stocks or electricity stocks that have there been some electricity stock
that have gone through the roof this. Oh, yes. And I but I don't know
if they're in the Xcel you. But I wonder I wonder if that has caused
the utilities to be a little bit more volatile and, you know, moving up and down
your SIF model, you know, the way that I look at that is knowing
why doesn't help you make more money. So I yeah, sometimes it hurts, right? Sometimes there's a right. You know, you know, so for us, we're just following the data,
we're following the money. But it's an aside from that,
there's been a couple of periods this first five or six months of the year
where I saw health care up at the top of the heap for one
or two weeks, then stay there long. But it was there and Staples
was there for one or two weeks. And just like you said, of Russia, it's
it's like, okay, let's try this. And it doesn't work immediately. And they're out of there and they're right
back. It's back again. So, yeah, it's it's almost like,
you know, senior guys trying to steal a base
right in baseball, Right? You know, he gets off, he gets off, you know, pitcher looks at him,
he goes right back. The first much you know, it's the like that. well, John, we're trend followers here and
you're talking a lot about these trends. So when the trend is so short,
what do you do? How do you make money in that environment? We stick with our models. SIF model for the past four years, first year, I think it outperformed the S&P by 3%. The second year
it outperformed by 22 or 23. The third year,
which was the major downtrend. We caught the move in energy. That whole big. Oh yeah, yeah. If you recall that move,
that's basically right. January to mid June. The money went there
according to our model. Stay there for five months. So that was
we have performed at 27 or 28% last year. We're relative performance. We're dead
even with the S&P. So I think if you're using a model
and you're comfortable with it, especially you're comfortable
with the risk parameters, you know, your batters are right and you're young,
you know, your maximum drawdowns are something that you're comfortable
with. You can't if you start trading your own
model, you're not going to make any money. You know, you do the work, the back
test your model and understand that you're not going to have a nirvana, Nirvana
kind of an environment all the time. Your model is going to flourish. The game is over time. How does this thing do over time? We've got a couple of two
or three different models. We blend them together and we bet,
test them, assess where you might be 30% in this model and 77% in that one. See what the risk reward numbers look
like that and we blend them for clients. I'm a lot more comfortable
then try to chase the tail of the S&P 500. I find things that have worked over
a 5 to 7 year time period and we stick with them and understand
that if the market goes through, it's different cycles. Sometimes it's in an uptrend,
sometimes it's in a downtrend, sometimes it's sideways over time
by making logical, data driven decisions. I think that's the only way
to play this game. I really do. Yeah. I mean, I think that's actually even from a bigger picture
and a conceptual kind of view. I think what you said is very important. You did your backtesting,
you did your studies, you found out something that worked for
you and you're sticking with that, you know, much like were
we have our own view and we have our own methodology
and we stick with that. And then in the end, as Justin mentioned earlier, we all kind of end up
in the same conclusion. But maybe we've taken different paths
to it. So it's that consistency and especially
once you once you find something that works, a lot of people will just kind of go
from strategy to strategy to strategy, and they never kind of develop
that expertise to develop the sensitivity how markets can change and adapt
in different environments. Yeah, I think a parallel to that is when
you look at investor sentiment, right? Investor sentiment
is really bullish at the top. Yes. And that it's a fire drill that get out
and then it's really bearish at the bottom and that's where the opportunities lie. I think human nature drives these markets, how we react to fear
and greed as a huge group of investors who together, those are the buttons
that are in our DNA, Right? We're either really fearful or,
you know, we're really greedy and people tend to ditch strategy who you might be in like a different period
like this. This has been a pretty unusual six months,
I'll say. Well, I'm just you know,
I'm not going to use this anymore. It's kind of like
when you throw in the towel at the bottom. Yeah, right, Right. And then you're saying,
oh, man, now what do I do? And so whenever you have those
and if you let the market push your buttons like that,
I think you're dead meat. I think you really need to have a strategy
that has to do with data, has to do how something is responded
to the market over the past 5 to 7 years. This past 5 to
7 years have been great, right? We've got a pandemic. We've had a major uptrend,
we've had a major downtrend. We've had a shift from a zero
interest rate policy back to a little bit
more normalized interest rate. There's a lot of stuff
that's happened in the past seven years. It's a great chunk of data
to use for backups. Yeah? Mm hmm. Yeah. You have another way of looking at some of these sectors
that I wanted to kind of have you share with with our listeners. And that is kind of what you call
the Rainbow charts. So I'm going to pull
we can pull up the XLK right now, which as you mentioned,
has been the best performing sector Spider fund of of the year so far. So how do you
how do you use this Rainbow chart to kind of tell you what's happening here? This is a component of our SIF model,
which is a part of our services we offer. And we also, you know,
we manage money with this model, but we had the chart, kept it internal for a while. I wanted to be able to look back a year
and just see the relationship between what the model is telling us
and what the market's doing. So what we have on top favored is green and neutral, is yellow
and avoid is red and down at the bottom. This is SLK up at the top,
down at the bottom. It is a corresponding
relative performance chart between X. Okay. And SPI. So you can see on May 15th year,
the last quarter of the year on the right, on May 15th, it moved into favored status, it got stronger and then it had a quick dive
here. It's a neutral on June the fourth and
then it quickly came right back up again. So during that period
since May 15th, we've had 4% of relative outperformance
and that's what we're looking for. But what's been odd this year, take a look at this dive from basically looks like the middle of March
and then we collapse all the way down and to avoid the weakest
that we could have, which would be a ranking of 33, you know, that's you know,
that's the lowest it could go. And then we look what happened in the meantime,
we had relative underperformance here, and then as soon as we bottomed out here
on avoid and started to move higher, we got an even bigger move up. But these types of choppiness
is something that you don't normally see. What you normally see is like what
we have here from October of last year to roughly December of last year,
we had the sustained period. This is about a third through the chart up
top where it was up in the green and stayed there
and it gave us this big move. So all we're doing here,
we're not predicting, we're not trying to forecast where the, you know, the economy's going to go. We're chasing the money. And when the money finds a place
that it likes, it stays. You get one or two of those trade
of those sustained moves every year. Like we had an energy,
you know, during the major downtrend. And those make your year is finding those places
where the money goes in the money sticks. And this shows us kind of what it's doing. Yeah. Let's go ahead and show
one more before we take a break. You gave us a few to choose
from utilities, real estate. Which one would you prefer? Let's look at utilities,
because it's been kind of unique also. Okay, perfect. So you've got utilities, which if you look up top here, it's
in favorite status as of April the 30th. And we had some relative outperformance
here. Now, it's been about a relative performer
really since April the 30th, maybe down a touch, but note that it's got the best safe ranking here that it's hit all year. That's kind of interesting to me. The highest it's been all year, the best
ranking that utilities has had. Another interesting take away on this one
is look at from January, which is right dead in the middle of the chart
when it dropped into avoid it stayed in avoid
it popped into neutral a couple of times but it stayed there
to avoid for a pretty good period of time. And it gave us a nice period of relative
underperformance underneath. So this is for the managers
that work with this. This not only tells us where to be,
but it tells us we're not to be. So they may look at SIF and say, okay, we're you know, here's the stocks
that were holding in our portfolio we've got staples and sell you on avoid So let's see which stocks we have or let's
see what those charts look like. Let's see if they may want to pare back on those
because the money's coming out of those to go in other places. And this one's so much steadier. Right. As opposed to the EKG, you know. Yes, exactly right. Yeah. This is choppy, too. I mean, they're
usually more stable than this. I mean, there's been a lot of chop here. If you look from September,
look in the fourth quarter, it's been an hour in and out. So but they help me to see these trends
as they're the data is nice to see,
but it helps me to visualize what the ranking is
and what the market's doing about it. Sometimes it reacts really strongly,
sometimes not so much because there's other factors,
obviously, than just this. You know, there's, you know, interest rates, you know, and economics. And there's a lot of different things
that are making the markets move. But I think the one of the most important
ones is where is the money going? And that's what this shows. Yeah. Well, when we come back,
we're going to get John's thoughts on a few individual stocks
and wrap up this show. So stay tuned. We'll be right back. We're back and it's just Nielsen here
along with Urrutia, Pierce and our special guest
John Kosar from Asbury Research. He is the chief market strategist
there and a frequent guest that we've had on a number of times.
And he's got great stuff. So, John, let's let's kind of dive
back into the market a little bit when we're looking for actionable things. It's no question
that the Nasdaq composite, the Nasdaq 100, those have been kind
of the indexes to watch. As you said,
technology's been one of the big areas. So maybe we could throw up this chart
that you provided on, you know, Kuku Q
and how the assets have changed there to kind of, you know, tell us a little bit
about why you're choosing the stocks that you're choosing. Sure. I mentioned earlier we looked at SPI versus AG
and we pointed out that there is an inflection point there
on a 21 day basis, which is, again, that's our critical time
period here in Asbury. This is index right up on top
and underneath is the Q. Q. Q Are you dealing with the 21 day
moving average so nobody what the future is going to be? I mean, I've found out after 40 years,
I have no idea what the future is going to be. So when's the next brownout, right? Yeah, that's right. That I can talk. So the next best thing is
if you can find these inflection areas where you've got some risk reward and the market's
kind of backed into a corner and it has to do one thing or another. So that's the spy egg chart show. And this is given us the same
the same setup, but a completely different indicator. Right? So we've got the cues. We're above the 21 day moving average from
Jan eight to April 9th, and that gave us that nice
move up in the first half of the chart. It drove down below it from April
ten to May two, about three weeks, and then it reengaged that trend on May. The third look could happen in June the
fourth, It came down in test the average and within a couple of days, if we had a flush of new money
coming into the cues, it took it off the average in the lower
panel and it gave us a really good place to put additional money to work or to put
a, you know, whatever position on here. We had a risk reward
because we knew if it goes to the 21 day average on the bottom part of the chart,
we're out because now we're in monthly contract and we're at that same place now as of
and I'm going to get, you know, the data in a couple of hours
and we'll see what happened today. But right at the same place now. So if we see those assets start to expand
again, this is another place that might turn into a technical bottom,
just like we had in the beginning of June. If it fails, we really didn't risk
very much like we risk just a little bit here
to catch that move up to the recent highs. So what does all that tell me? It tells me while the market's been quiet
all week, why it's waiting for PCG. That's the Fed's favorite inflation gauge. So that's the trigger. That's going to,
I think, start the next move. But what this tells us
is that we have some risk reward here if there's going to be another leg
higher in the next two charts are going to adjust that. But if there's going to be another leg
higher according to the asset flows going into the cues,
this is an inflection point, a a technical basis makes sense. So one of the first stocks
that you wanted to cover is Microsoft. So certainly,
you know, Microsoft and Video Apple, they're all vying for that number one spot
as the biggest market cap company out there. And what is it
that you're seeing on Microsoft? It certainly has
a lot of sway on the Nasdaq 100. Is this is this potentially actionable
here or how would you handle it? Yeah, Microsoft, Microsoft in video, Google, Amazon, I think. Mm hmm. The top five in market cap in the S&P 500 or about 31% of the market
cap of the entire index. It's just those are really big. So understanding the way
the market's moving now, there's a handful of megacap air related stocks
that are really driving the bus. I've been looking for patterns on these
to try to give try to answer the question that everybody
here, how much farther can this thing go? Right.
That's what everybody wants to know. So we had a technical pattern here. It's called an ascending triangle. Basically, the market's been trying
to get up through the September 28 highs for a while. And in the meantime,
the bottoms are rising. Right. So, you know, the demand is getting
better, but it's holding those old highs. So we had a breakout on June the third. Again, we don't know what's going to happen in the future,
but this breakout, as long as we stay up above the upper edge of the pattern here
at four 3082, the targets for 73 and for 73 is a 5 to 7% higher
than where Microsoft is right now. So that tells me back of the envelope,
as long as we hold for 31 ish in Microsoft, there's a potential. And if July is a pretty good month
seasonally, I mean, it's not super strong,
but it is a rebound from June. This tells me that we could have some legs
here. Again, what's going to happen? Lastly, dependent on what happens on
Friday, PCG technical technical point. But this tells me that this could
potentially go on another 5 to 7% higher. And the linear correlation
between Microsoft and the S&P 500 has been up in the 8.9 area for 35 or 40 years. So they're very closely
related to each other. So do they drift? Sure. But generally speaking, as goes Microsoft
thus goes the market. Yep. And I just real quick,
I think you said the breakout was June 3rd, but your chart shows June 11th,
and that's what I'm kind of showing just to make sure that in case
people go back and look at the chart, it's June 11th
that you were looking that right? That was a typo with my mouth. Yes. Okay. Very good to go over. Yes. And I should have also disclosed
that I do have a position myself in in Microsoft. So, yeah, that's that's really interesting stuff. Maybe we can move on or did you have anything to add there?
No, no. I mean, it looks like a solid breakout,
about 23 target. It's not exactly usually when we're looking at it
through the IBD methodology, we're looking for around like 20% or so,
which might be a little bit higher. But I think that 40, 74, 73 is
is definitely a a reasonable one. Just using the I'm, I'm
assuming you're just using kind of the measured move from the
the triangle. Very simple like that. And again it's not set in stone
but it gives me some parameters. If you go through 431
we're probably done on the upside, right, because you collapsed back
end of the period. So it gives me
some back of the envelope stuff to watch. It's perfect. Yeah, absolutely. Let's go ahead and take a look at Apple. And I also do have a position
and this one as to why it kind of kind of looks
has some similarities. And Apple, it was interesting
because this really wasn't participating, you know, for a while there. And then of course,
they had their developers conference. They used that key phrase I and wow,
you know, things things changed. Yes. There was a lot of important stuff
that happened on June the 11th. Actually, we looked it up here. I don't have it at the top of memory, but this was generated by some important
information that came out from Apple. But the the the sense of the chart is the same. Right. So we got up to the highs back in July
of last year and then we went sideways. That means indecision, right? Know nobody wants to buy that new high because it's too scary for them. Well, that changed
when that information came out. You know, when that news came out on June
the 11th. Again, very simple technical, you know,
technical analysis, one on one stuff. Right. You take the width of the pattern,
you stick it on top. We know the breakout was one 7851. That's the high from July of 2023 targets, the move to 230,
that is also about 5 to 7% higher. So as long as we stay up above one 7851
this June 11, move is the re-engagement of the trend
that started back in January. And we're okay
because we know this has so much sway. That's one advantage. Maybe that this odd market has
is there's a handful of stocks that are driving the bus. So if we get the stocks right
and we've got some patterns to lean on, there's an element of safety there. So we know if we go through 178 now, I'm starting to look at my asterisk
next to see what the internals look like. I'm starting to look at the s and flows in the Q is to see if people
are the ones getting out of the pool. So these gives us some benchmarks where if these big mastodons are going to keep
dragging the rest of the market up, we have some expectations up and some levels that we can use
as fail states on the way down. Yeah, yeah. That was a powerful, powerful breakout past that resistance
or that 178 resistance. So it didn't just open the door
at that time. It knocked the door down. Right? Not so. Let's see how that works. But a lot of times
you want to see something like that when it when it breaks out like that. Yeah, it took
it took a battering ram to that door. And you know, it's interesting
that you mention that June 11th date, You know, such an important one
for both Microsoft and Apple. You know, one of the big pieces of news
was a partnership where Apple is going to be using iOS,
you know, 18. That's right. With Openai,
you know, partnering with Microsoft. So again, now now you've got two big
behemoths that are kind of going to be, I don't know, wonder twin powers
activate type thing. We'll see what happens. For those of you that remember the super
friends back in the day. Yeah. So very, very, very good stuff. So, John, you know,
before we let you go again, you're always so kind enough to share. You know, a lot of your charts
and stuff like that. Where where should folks go? Follow through on Twitter or go to your website
to kind of get more information to places? The they're both pretty easy. The first one is you can go to the Asbury
Research YouTube channel. There's a lot of videos there. There's a lot of videos
that I've done in the media. There's a lot of our own stuff
that we put up there, though, you know,
give you a little bit more information. We have an unusual way
of looking at markets that I've kind of developed
over the years. We're not so much looking at the Mac these and the stochastic split,
but we've kind of developer tools the other places
Asbury research dot com contact tab. If you're interested in getting
more information about our services. Again, we supply research
and we also manage money. You could go there
and you know, give us your name and email and we'll send you an email back
that will give you a little bit more information
if you want to open up a dollar for us. Right. Well, hey, John,
thanks a lot for coming on the show. Again, It's always great to have you. Go get yourself
some brownies. You deserve it. It's always fun to hang out with you guys. Thanks. Okay. Take care. That is going to wrap up our show
for this week. Next week starts how long? A Russia drought. We're going to have a few weeks
without a Russia, but don't worry, we've got Mike Webster
that's going to be coming on the show. So he's going to join me and we're going to see how much
we can chat about Russia behind his back. So hope you join us for that. Thanks a lot for watching this time
around. We'll see you next time.
